When the Economy Is Sick: Impact of the COVID-19 Pandemic on

the Regional Real Economy

Dmitry Rodnyansky

, Elena Drobot

2,3 b

, Ivan Makarov

4,5 c

, Natalia Pakhomova

and Marina

Titova

Kazan Federal University, Kazan, Russia

PRIMEC Publishers, Moscow, Russia

Center of Additional Professional Education, Vyborg, Russia

Financial University under the Government of the Russian Federation, Lipetsk branch, Lipetsk, Russia

Institute of Business Career, Moscow, Russia

Lipetsk state technical University, Lipetsk, Russia

Russian Presidential Academy of National Economy and Public Administration, Lipetsk branch, Lipetsk, Russia

Keywords: Coronavirus, Economic Growth, Economic Decline, Gross Domestic Product, Pandemic, Real Economy,

Restrictive Measures.

Abstract: In the context of the COVID-19 pandemic, an economic decline is observed in most regions of the world in

2020–2021. The restrictive measures caused a significant reduction in business activity. Falling incomes and

reduced demand of households should be considered as the main channel for the impact of coronavirus on the

economy. All above mentioned in turn causes a reduction yield and a feedback effect. Russian economy has

been significantly affected both by the deteriorating external economic conditions, such as drop in oil prices,

currency fluctuations, financial market volatility, and by the established accepted and voluntary restrictive

measures. The purpose of the article was to analyze the impact of the COVID-19 pandemic on the world

economy in general and Russia in particular. The authors examine macroeconomic statisticsЧ on gross

domestic product (GDP) fluctuations and assess possible economic downturns in the world and in Russia.

Changes in the real sector of the economy in the world and in Russia are revealed. The results of the study

can be used for further research on the impact of global virus attacks on the socio-economic systems at all

levels.

1 INTRODUCTION

The spread of the coronavirus and the restrictive

measures imposed everywhere, along with the self-

restrictions of the population, has had a rapid impact

on both national economies and the global economy

as a whole.

In the context of increasing external threats and

impact of the pandemic on business relations and on

the deformation of marketing communication fields

within the borders of different territorial entities, the

system quality in all segments and links of the

https://orcid.org/0000-0003-1389-1503

https://orcid.org/0000-0002-5205-5455

https://orcid.org/0000-0002-7698-1875

https://orcid.org/0000-0001-5859-1374

https://orcid.org/0000-0002-9618-1891

business sphere deteriorates. The instability of the

socio-economic sphere of society increases the

asymmetry of marketing behaviour of subjects and

multipolarity of the impact of different hierarchical

levels of regulation and management on key areas of

entrepreneurship in national economies. The

unbalanced modulating effects of various market

participants contribute to the deepening of

motivational and resource contradictions between the

subjects of relations in the conditions of uncertainty,

instability and increased crisis processes and

Rodnyansky, D., Drobot, E., Makarov, I., Pakhomova, N. and Titova, M.

When the Economy is Sick: Impact of the COVID-19 Pandemic on the Regional Real Economy.

DOI: 10.5220/0010588402150221

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 215-221

ISBN: 978-989-758-519-7

215

phenomena under the influence of an external

coronavirus pandemic explosion.

At the end of 2019 and in the first half of 2020 in

Russia the interest of researchers in reviewing the

state of the economy in the context of a pandemic has

increased.

Recently, there have been a lot of publications on

the main trends in the development of the world

economy as whole and individual countries in the

context of the crisis triggered by the COVID-19

pandemic. In this case the scientific researches of

such experts as Boccaletti et al. (Boccaletti, Ditto,

Mindlin, Atangana, 2020), Drobot et al. (Drobot,

2020; Drobot, Makarov, Nazarenko, Manasyan,

2020), Grigoryev et al. (Grigoryev, Pavlyushina,

Muzychenko, 2020), Grinberg, Pylin (Grinberg,

Pylin, 2020), Milovidov, Asker-Zade (Milovidov,

Asker-Zade, 2020), Varnavskii (Varnavskii, 2020)

should be mentioned.

The scientific papers by Akindinova et al.

(Akindinova, Dabrowski, Shirov, Belousov,

Voskoboynikov, Gurvich, 2020), Dynkin, Telegina

(Dynkin, Telegina, 2020), Kolodko (Kolodko, 2020),

Mau (Mau, 2020), Minakir (Minakir, 2019), Polbin et

al. (Polbin, Sinelnikov-Murylev, Trunin, 2020) were

devoted to the search for ways and means of economy

revitalization in the post-pandemic period.

Researchers are also interested in assessing the

impact of the pandemic on the well-being of the

individual, mental and physical health of the

population. Asai et al. (Asai, Konno, Ozaki, Otsuka,

Arai, Kitagawa, Ofusa, Yabumoto, Hirotsu, Eguchi,

Doki, Ishii, Taniguchi, Vecchione, 2020),

Conversano, Marchi, Miniati (Conversano, Marchi,

Miniati, 2020), Dheeraj (Dheeraj, 2020), Kuklin et al.

(Kuklin, Pecherkina, Tyrsin, Surina, 2017),

Mediawati et al. (Mediawati, Susanto, Nurahmah,

2020), Sharma (Sharma, 2020), and Welling et al.

(Welling, Batlle, Byrd, Burrell, South, Sparks, 2020)

addressed these issues in their articles.

The purpose of the research was to assess the

changes taking place in the real sector of the economy

in the world and in Russia, and to determine the

impact of the spread of coronavirus on the individual

economic sectors.

2 MATERIALS AND METHODS

Data from The International Monetary Fund (IMF),

Bloomberg, Bank of Russia, Ministry of Economic

Development of the Russian Federation, Federal State

Statistics Service of the Russian Federation (Rosstat),

etc. provided an empirical base of the study.

The research is based on the analysis of

macroeconomic statistics on gross domestic product

(GDP) and gross value added fluctuations as a whole

and by economic sectors.

The methodology of comparative economic

analysis, methods of induction and deduction based

on the provisions of neoclassical economic theory

were used.

3 RESULTS

3.1 The Outbreak of COVID-19

In 2020 the COVID-19 pandemic has become truly

globalized. The numbers of infected cases and death

globally are increasing so rapidly that the epicenter of

the pandemic is moving fast. Figures 1, 2 show the

total number of confirmed cases and deaths in the

world as a whole and in the G20 countries. According

to the data in September 2020, the numbers of

infected cases globally stand at 25,541,380, with

852,000 death cases. The number is stunningly high

when compared to other similar outbreak in the past;

for example, the SARS outbreak killed 774 and

infected 8,098 between November 2002 and July

2003. However, in September 2020 COVID-19’s

worldwide fatality rate stands at 3.33%, while

66.31% have so far recovered.

While the virus has already reached more than

200 countries and territories, the US, China, and the

Europe appear to be the biggest victims. The top

countries in terms of number of infected cases are the

United States, Brazil, India and Russia (Figure 1).

Initially China was the epicenter with a very high

number of infected and death cases, but that moved

very fast to the Europe making Italy the next

epicenter. At the latest, the US tops the list with

6,088,672 confirmed cases and 183,066 deaths,

making the country the latest epicenter of the

diseases, according to the data in September 2020.

Except for the USA, Brazil, India, Mexico, Great

Britain, Italy, France and Spain leads by the number

of deaths caused by COVID-19 (Figure 2).

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

216

Figure 1: Numbers of COVID-19 infected cases in G20

countries, September 2020

Source: compiled by the authors according to: Trading

Economics. URL:

https://ru.tradingeconomics.com/

(Date of access 07.08.2020).

Figure 2: Numbers of deaths caused by COVID-19 in G20

countries, September 2020

Source: compiled by the authors according to: Trading

Economics. URL:

https://ru.tradingeconomics.com/

(Date of access 07.08.2020).

3.2 A Crisis Like No Other: Impact in

Figures

The constant updating data indicate deterioration in

long-term forecasts. Thus, the current situation is

more complex than it has been previously estimated.

This situation was very clearly described in the

headline of the IMF Bulletin in June 2020 “A Crisis

Like No Other”. By the way, the IMF itself

significantly revised its forecast in an unfavorable

direction. Thus, according to the IMF forecast, only

China will maintain positive GDP growth in 2020

(Figure 3).

Figure 3: Real and

projected

GDP growth/decline, %

Source: compiled by the authors according to the IMF.

Many countries suffered from several types of

crises both in the economic and health sectors in the

first and second quarter of 2020.

According to the IMF experts, the total loss of

global GDP in 2020–2021 will reach about $9 trillion.

And this is more than the combined size of the

Japanese and German economies (Figure 4).

Figure 4: The IMF forecasts for GDP decline, April – June

2020, %

Source: compiled by the authors according to the IMF.

The negative impact of the pandemic on

employment in percentage terms is more than it is in

relation to GDP (Walmsley, Rose, Wei, 2020). This

is due to the fact that most service sectors, especially

in the most economically developed countries such as

the United States and Europe, tend to be more labour-

intensive. And their closure has a more negative

impact on employment than on the main sectors of the

economy.

The uncertainty increases with each new forecast

for the impact of coronavirus on national economies.

In addition, the lack and lag of data significantly

complicate the objective assessment of changes.

Over the past few years, there has been a tendency

to reduce the growth rates of developed and

When the Economy is Sick: Impact of the COVID-19 Pandemic on the Regional Real Economy

217

developing countries (Figure 5), which, in the context

of the combined impact of the pandemic and the

aggravation of the situation in the oil market, has a

negative synergistic effect on the Russian economy.

Figure 5: GDP growth rates in developed economies and

the Russian Federation, quarterly data, %

Source: compiled by the authors according to Rosstat, Bank

of Russia, and Bloomberg.

The Russian economy has been significantly

affected both by the deteriorating external economic

conditions (drop in oil prices, currency fluctuations,

financial market volatility) and by the restrictive

accepted and voluntary measures. Falling incomes

and reduced demand of households should be

considered as the main channel for the impact of

coronavirus on the economy. All above mentioned in

turn causes a reduction yield and a feedback effect.

The assessment of the decline in economic

activity in Russia remains very ambiguous: from -

4.3% in the HSE consensus forecast to -6% in the

World Bank forecast and -6.6% according to the IMF

forecast.

In our opinion, the main effect of restrictive

measures will be reflected in the reduction of

consumer demand and investment, which accordingly

determines the main vector of anti-crisis measures.

The restrictive measures and lockdown caused a

significant reduction in business activity.

Thus, according to the Russian Ministry of

Economic Development, GDP decreased by 12% in

April 2020 compared to the corresponding period of

the 2019. The decline was about 10.7% in May 2020

and 6.4% in June 2020 (Figure 6). The gradual

dropping of restrictions contributed to the

improvement of dynamics in May – June 2020. At the

same time, according to the Bank of Russia, the

annual decline in GDP may reach 9–10% in the

second quarter of 2020.

Figure 6: GDP growth/decline rate in 2020,

as a

percentage of the

previous year's corresponding period

level

Source: compiled by the authors according to the data of the

Ministry of Economic Development of Russia.

The decline in industrial production had a

corresponding dynamics. The largest decline

occurred in the manufacturing, as the restrictions

were added to the reduction in demand in related

industries. As a result, production decreased by -10%

in April 2020 and -7.2% in May 2020.

The pandemic also had a significant impact on

retail sales. And as it was expected, the decline was

more in non-food products sector (-36.4% in April

2020 and -29.2% in May 2020, compared to the

corresponding period of 2019) (Figure 7).

Figure 7: Growth/decline rates of industrial production and

retail trade turnover in 2020,

as a percentage of

the

previous year's corresponding period level

Source: compiled by the authors according to the data of the

Ministry of Economic Development of Russia.

Food retail turnover was less affected by the

decline, with a drop of 9.2% and 8.6%, respectively.

The reduction of the retail sales decline in June 2020

was mainly due to a gradual recovery in demand for

non-food products, which in turn has had a positive

impact on the accordingly oriented manufacturing

industries

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Investment activity also suffered a significant

negative impact of lockdown. The level of investment

in 2020 was the lowest in the previous five years.

Similar trends are observed in the production of

investment goods, transportation, and import of

machine-building products. It should be taken into

account that the growth rate of investment in fixed

assets in Russia has been declining recently. Even in

the updated macroeconomic forecast of the Ministry

of Economic Development of the Russian Federation,

published on September 30, 2019, expectations for

the growth of investment in fixed assets in the coming

years were lowered for various reasons. The forecast

for investment dynamics was lowered from 3.1% to

2.0% in 2019.

At the same time, it is worth paying attention to

the observed heterogeneity in the growth rates by

industry or sector. A significant increase in

investment activity in some sectors is taking place

against the background of a significant slowdown in

others.

Considering the dynamics of investment by

industry or sector (Figure 8), we jump into

conclusion that many outsider industries are included

in the list approved by the Government of the Russian

Federation that are most affected by the deterioration

of the situation as a result of the new coronavirus

infection.

Figure 8: Growth rates of investment in fixed assets in

Russia by economic sectors in 2019,

as a percentage of

the

2018 level

Source: compiled by the authors according to Rosstat data.

According to experts, the COVID-19 pandemic in

Russia affected about 4.17 million companies and

individual businessmen out of a total 6.05 million,

i.e. about 67% of small, medium-sized and large

enterprises and individual businessmen.

A reduction in the number of SMEs, a decrease in

production volumes and financial indicators

deterioration can also lead to a decrease in the share

of SMEs’ production in GDP.

According to a joint study by NAFI and Forbes in

June 2020, 76% of companies reported revenue

reduction, 66% noted demand reduction in, and

36.5% indicated reduction in the number of suppliers.

The impact of the coronavirus pandemic has a

serious impact on the internal labour forces. In

particular, the coronavirus affected the motivation of

employees to implement their work activity and

professional adaptability to the challenges of a

changing unstable market.

The motivation of the labour resource to implement

its innovation capacity has decreased by 23–25%. For

example, experts estimate that a 22.4% drop in

employment in the United States over the three-

month closing period means 35.2 million workers

over that period (Walmsley, Rose, Wei, 2020).

4 DISCUSSION

The vulnerability of certain countries as a result of the

negative impact of the COVID-19 pandemic is

explained to a certain extent by the lack of mutual

international support to ensure sustainable

development (Barbier, Burgess, 2020).

The COVID-19 pandemic contributed to a serious

disruption in global value chains and pushed the

world economy into recession (Coveri, Cozza,

Nascia, Zanfei, 2020), distorting established ties and

destroying the balance of interests, which became

more focused on political rather than economic

conditions. At the same time, the pandemic has

revealed opportunities for revising industrial and

economic policies in managing the development of

national economies, without looking at the pressure

of the multidirectional forces of globalization and

deglobalization.

Thus, the study of the impact of the pandemic

on socio-economic processes in the economies of

different countries (including Russia) indicates

destructive phenomena in the industry segments of

national economy that hinder the innovative

development and form an increasing internal

antagonistic tension in the system of relations

between different stakeholders, i.e. between business

and employees, between business and government,

between stratification classes and society, etc.

(Shchepakin, Gubin, Khandamova, 2019). Russia

accepted the challenge of the pandemic as an

objective reality, which strongly dictated the

requirement for all stakeholders of the socio-

economic process to seek a consensus of interests not

When the Economy is Sick: Impact of the COVID-19 Pandemic on the Regional Real Economy

219

only within the country, but also at the level of the

world community.

5 CONCLUSIONS

The pandemic and related restrictions have had a

negative impact on macroeconomic indicators. There

is a recession in all regions of the world. And like any

economic crisis, it is characterized by economic

decline and reduction in business activity,

unemployment increase, and decrease in investment

activity.

Sudden outbreak of coronavirus disease in 2019

led to a global commodity downfall

(Rajput, Changotra, Rajput et al., 2020). And it

greatly affected the demand, as well as the supply of

goods. The COVID-19 pandemic has caused a major

disruption to global value chains (Coveri, Cozza,

Nascia, Zanfei, 2020).

The oil market had been severely damaged by a

sharp collapse in demand, mainly due to travel

restrictions, which also led to a sharp drop in oil

prices. Prices of precious and industrial metals also

fell down, although the drop in prices was less than

that of oil prices. The agricultural sector is still one of

the least affected by this pandemic because of its

indirect link to economic activity. However, the final

impact of the COVID-19 pandemic will largely

depend on the severity and duration of its spread, but

it is expected to have long-term consequences

(Rajput, Changotra, Rajput et al., 2020).

An effective program of state support measures

will be required to overcome this situation.

It seems that by the end of 2021, the

macroeconomic situation may change, both for the

better and for the worse. But an improvement in

Russia's macroeconomic situation can be expected if

the optimistic forecast of an increase in oil prices on

world markets to the pre-crisis level of $100–150 per

barrel comes true.

As for the time scale of the Russian economy

recovery in terms of GDP growth, there are two

possible scenarios.

In accordance with an optimistic scenario (with

oil prices growth), the Russian economy will be able

to recover to pre-crisis level of 2019 by mid-2021. If

we consider a pessimistic scenario, which, in our

opinion, looks more realistic, then it will take at least

three years to overcome the consequences of the

crisis, and only by the middle of 2023 Russia will be

able to cope with the crisis in the economy.

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